5/05/2005

The Trickle-Up Phenomenon

Mostly the kind of financial pressure that we hear the middle class suffering under these days isn't because they're trying to buy Prada handbags. Mainly it's just trying to keep up with mortgage payments on a house that's beyond their reach.

Said Robert Frank, Cornell University Professor of Economics and Management, to WBUR's Dick Gordon on today's Connection show, titled "That Love of Luxury."

Before 1970, the three decades after WWII, everybody up and down the line saw their incomes grow at about 3% a year. What changed after that was that virtually all the income growth has been occurring at the very top of the income ladder.

The trend is this: If you're at the bottom of the group, you're not doing too well. You're doing maybe even worse in absolute terms than you were doing 25 years ago. If you're in the middle, you've had some moderate income gains, but really not much. It's really the people in the top 5th of every group that have had the gains. And then if we look within that group, we see the same pattern there too. So it's the people at the very top of the top 5th who have gotten most of the gains.

"But isn't all that wealth supposed to trickle down?" asked Gordon.

I think what we see now is that there's even more of a trickle-up phenomenon going on than a trickle-down phenomenon. So if you look at what happens when somebody gets a big new pay increase who's already got a lot of money, where does that money go? At one time, it might have trickled down in the form of hiring a lot of extra servants, or buying goods that were manufactured with manual labor... car manufacturers that employed skilled and unskilled laborers to produce the kinds of things that people at the top with extra money might buy.

What we're seeing more and more now is that people at the top are buying specialty items, items whose demand actually increases the skewness in income distribution that brought it about in the first place. So you go to cosmetic surgeons, you go to specialty designers, you go to a whole phalanx of people where the dollars you spend are going to be going primarily not to lower income people but to the people who direct those new enterprises.

Chewie has her own Economic Indicators, and they are down this week.

Our office toll-free number is just one transposed digit away from the number for Florida's Department of Children and Families. Until I learned to check the Caller ID area code before answering, I was talking to at least 3 or 4 distraught women a day who were looking for their Food Stamps, wondering when their Medicaid was going to kick in, or pleading for a review of their case. Now, I let the Florida calls go to voice mail. At the end of the day I have to listen to all their messages. They're often confused and/or angry, with a stifled hint of desperation. I wish I knew how to forward these messages directly to the residential wing of the White House.

This week, Florida is calling 9 or 10 times a day. Sometimes I answer. Most of the time, I have to let it go.

I hope that they realize they haven't reached someone who can help them, and that they will keep trying, no matter what.